February 20, 2015 5:05 PM
To surprise of many, Friday’s meeting in Brussels ended with white smoke, like Greek Finance Minister Yanis Varoufakis has hoped when he was referring to the signaling system used by the Vatican. The meeting, which was scheduled to discuss Greece’s proposal for a six-month extension of its loan agreement with the Eurozone lenders, was sealed with a deal to extend the current bailout by four months.
The Greek government formally submitted their request on Thursday, following pressure from the ECB, which decided to raise a cap of Emergency Liquidity Assistance to Greek banks to 68.3 billion euros. The modest increase of 3.3 billion euros of cash offered by the ECB was significantly smaller than the 10 billion euros that the Greek Central Bank had been requesting.
Even though the decision to ask for an extension was welcomed by the markets, Germany’s early reaction suggested a pessimistic outcome on Friday. A German document, prepared for the Euro Working Group meeting in Brussels on Thursday, called Greek proposal a “Trojan horse,” as it did not include any clear commitment to successfully conclude the current program and it fell short of a clear freeze of proposed Greek spending measures.
Additional pressure was applied by Donald Tusk, President of the European Council, who rejected Greek prime minister’s calls to convene a summit of Eurozone leaders on Sunday, in case there was no deal today. Moreover, SKAI TV also reported that Spanish and Portuguese ministers, who also have leftist parties gaining support in their countries, tried to block any deal favorable to Greece.
According to the Greek Mega TV, the temporary agreement includes a four month extension of Greece’s bailout program, with no austerity measures. However, Greece had to commit not to make any unilateral decisions regarding its plans to reverse reforms made by the previous Greek government, including increasing pensions and wages. Eurogroup President Jeroen Dijsselbloem added that Greek government will also have to present a list of reforms to the Eurozone by Monday.
Even though Jeroen Dijsselbloem announced that Greece has committed to honour the previous government’s financial obligations, today’s agreement does not mean that Europe’s problems are finally over. The extension was made only for four months and both sides will have to engage in another round of discussions over the permanent deal.
February 4, 2015 9:05 AM
The latest statements of the newly elected Greek government show that negotiations between Athens and the so-called “Troika” will not be easy. SYRIZA sent a strong signal to EU leaders, asserting that Greece will no longer tolerate externally-imposed austerity measures and demanding a write-down of what the party calls unsustainable debt. While the Greek government repeats that it wishes to reach an agreement beneficial for both sides, and EU continues to claim that it wants Greece to remain in the Eurozone, neither side has so far shown any sign of mutually-acceptable compromise.
Alexis Tsipras, the Greek Prime Minister and the leader of SYRIZA, has been quick to reassure his supporters that SYRIZA intends to keep its campaign promises. During the first cabinet meeting the ruling coalition stopped two big privatizations and is now moving towards reinstating fired public sector workers, and raising pensions and minimum wages. Mr. Tsipras plans to present the complete program to the parliament within a few days.
The Greek government has not wasted any time trying to fulfill its other major promise—the write-down of the Greece’s debt. Last Friday, following the meeting with the Eurogroup’s chief Jeroen Dijsselbloem, newly assigned Finance Minister Yanis Varoufakis announced that Greece will not take out any new loans to meet its future debt obligations. The anti-austerity minister claims that Greece is insolvent and refused to cooperate with the appointed inspectors overseeing the bailout program, stating that Greece wants to negotiate directly with the Troika.
Unsurprisingly, international lenders were not pleased with the position taken by the Greek government. In an interview to the Berliner Morgenpost, German Chancellor Angela Merkel said that she does not see further debt haircuts for Greece, as it has already been forgiven billions of euros by private creditors and banks. Likewise, Erkki Liikanen, a member of the ECB policymaking Governing Council, warned that if Greece fails to reach an agreement with its lenders, the ECB will be obliged to pull the plug on Greek banks. Without the liquidity assistance Greece would be forced to leave the Eurozone, especially since four major Greek banks have already lost a third of their stock value, and continue to face massive deposit withdrawals.
SYRIZA does not have much time, as the current bailout program is due to expire on February 28. While Greece might have funds to meet its obligations the next few months, in summer it will face around 10 billion euros worth of debt repayments. The sharp increase in borrowing costs ruled out funding opportunities from the financial markets, as Greek 3-year and 10-year bond yields reached 16.6 and 9.8 percent respectively.
January 29, 2015 9:40 AM
Here’s a letter I wrote to the Pittsburgh Post-Gazette that appears in today’s paper:
The Post-Gazette’s editorial board calls on Congress to reauthorize the Export-Import Bank because the agency supposedly nets the government a profit (“Save the Ex-Im Bank: A Frugal Congress Must Keep a Revenue Generator”).
This is misleading for two reasons.
First, Ex-Im’s self-reported profits are largely the result of creative accounting practices. A recent Congressional Budget Office study using industry-standard fair-value accounting rules (“Fair-Value Estimates of the Cost of Selected Federal Credit Programs for 2015-2024,” May 2014) found that Ex-Im loses an average of $200 million per year.
Second, even if Ex-Im did make a $675 million profit last year, this is less than two-tenths of 1 percent of last year’s $483 billion budget deficit.
If Ex-Im’s goal is to raise revenue, it is spectacularly ineffective.
Congress should let this corruption-enabling program expire and turn its attention elsewhere.
Competitive Enterprise Institute
January 15, 2015 2:13 PM
With the Greek parliamentary elections being only two weeks away, it seems that the opposition leftist party SYRIZA is set for a victory on January 25. The most recent polls show that Alexis Tsipras’s party continues to hold the lead with 2 to 4 percent, even though the difference with the New Democracy is shrinking.
SYRIZA has already proposed a controversial economic program that it plans to implement once it comes to power. The program, which was first introduced by Mr. Tsipras in 2012, mainly focuses on negotiating a write-down of the Greek government debt, and reversing austerity imposed by Antonis Samaras’s government as part of the Greece’s bailout agreement. According to Costas Lapavitsas, a London-based Greek economist and SYRIZA’s economic advisor, in a revealing interview with the BBC, “both of these things are very sensible—basically mild Keynesianism.”
The self-described “anti-austerity” party claims that government debt, which accounts for more than 300 billion euros, is not sustainable, even though its service cost is going to be just 4 percent in 2015, which is much less than what other European countries are paying. Moreover, based on NYU Prof. Nicholas Economides’ calculations, the average interest rate on 250 billion euros debt to the EU Troika is only 1.82 percent with exemptions, such as no interest payments on 60 percent of the debt for 25 years and no interest payments on 20 percent of the debt for 13 years.
The leftist party also argues that austerity measures forced by the Greek creditors, mainly Germany, suppress economic growth and deteriorate debt sustainability. Mr. Tsipras, as a “mild Keynesian,” is certain that the crisis is caused by insufficient consumer demand, and therefore greater social spending together with private debt restructuring would allow Greece to attract private investment and encourage fast economic recovery. The party promises to restore public spending to pre-2012, and in some cases even pre-2009 levels. The 11.5 billion euros worth of social spending programs would increase pensions and minimum wages, cover food stamp and state housing programs, subsidized electricity, transportation, and healthcare.
Additionally SYRIZA plans to reverse Greece’s privatization program, reinstate some of the fired public sector workers and cancel the special heating gas tax. What is interesting is that SYRIZA promises that the program can be implemented without running a fiscal deficit, arguing that after the write-down Greece would not have to sustain such large budget surpluses.
The program was met with a lot of criticism, especially from the Finance Ministry, which concluded that it is based on a poor understanding of economics. The increase in public spending and wages would lead to large external deficits, higher labor and production costs, and a huge loss of competitiveness. Thus, instead of attracting private investment SYRIZA’s policy would result in capital outflow.
Another important concern is the program’s funding gaps. The Finance Ministry report states that SYRIZA’s economic program is more costly than the party claims, and it would actually increase the primary budget deficit to 9 percent compared to the current 1.5 percent surplus. With debt negotiations taking place between Greece and the Troika, SYRIZA would face some serious financing problems. The European partners would refuse to lend on favorable conditions, and the recent surge in bond spreads shows that it would be difficult to rely on the markets.
December 9, 2014 11:59 AM
As the Transatlantic Trade and Investment Partnership (TTIP) approaches an eighth round of negotiations between the United States and the European Union, the debate regarding genetically modified organisms (GMOs, or crop plants bred with genetic engineering methods) continues to raise important stumbling blocks. Despite a large and growing body of scientific evidence showing that GMOs are no more risky for consumers or the environment than conventionally bred crops—much of it paid for by the EU and conducted by public sector scientists in Europe, public sentiment in Europe remains worried about them (although there is evidence that this concern is exaggerated).
Consequently, many European governments harbor official concerns about the effects of GM crops on human and environmental health. The EU has imposed arguably the strictest GMO regulations in the world, which it rationalizes on the basis of the precautionary principle, the view that any possible risk, however unlikely, provides grounds for bans or severe restrictions. Because the EU has approved only two GMO crop varieties for planting and has approved only a third of the 100 or so GMO crops grown in the US for import as food or animal feed, the precautionary principle could very well halt what would be the world’s wealthiest trade agreement.
As Pierre Desrochers of the University of Toronto points out in an analysis (written for the new European Policy Information Center) of the Comprehensive Economic and Trade Agreement (CETA)—an agreement similar to the TTIP between Canada and the European Union—the EU’s use of the precautionary principle to obstruct the import of GMOs is nothing more than a non-tariff barrier to trade, conveniently protecting “otherwise uncompetitive locally produced foods.” Although the ban on GMOs is aimed at protecting the environment as well as the European consumer, GMOs actually cut down on environmental degradation that would otherwise occur with pesticides and herbicides. According to one study by the consulting firm PG Economics, between 1996 and 2012 GMO crops reduced pesticide spraying by 8.8 percent in the countries that planted them, while increasing yields and letting farmers produce more food on less land. And because farmers had to spend less time ploughing, weeding, and spraying their fields, carbon dioxide emissions from tractors and other farm machinery were reduced by 23.1 billion kg in 2011 alone.
December 4, 2014 7:09 AM
Earlier, we wrote about the misery inflicted upon the Congo and millions of desperately poor people by the 2010 Dodd-Frank Act’s “conflict minerals” provisions. A December 1 front page Washington Post article shows that the suffering continues unabated. It notes that these provisions “set off a chain of events that has propelled millions of [African] miners and their families deeper into poverty.” As they have lost access to decent-paying mining jobs due to the Dodd-Frank Act, some of these miners have even enlisted with the warlord militias that were the law’s targets.
Under Dodd-Frank, America’s publicly held companies are required to report on their supply connections to “conflict minerals” such as tin, tungsten, and gold mined not just in war-torn areas of the Democratic Republic of the Congo, but also in peaceful neighboring countries like Tanzania, which are effectively punished for their mere proximity to the Congo.
As the Cato Institute’s Walter Olson notes, “Lawmakers assigned enforcement of the law to the Securities and Exchange Commission – a body with scant discernible expertise in either African geopolitics or metallurgy – and barbed it with stringent penalties for disclosure violations, to which are added possible liability in class-action shareholder lawsuits.”
As we noted earlier,
People are going hungry, pulling their children out of school due to poverty, and joining criminal gangs to make ends meet in the poorest region of the Congo, the world's second-poorest country. Residents of this African nation attribute this economic devastation to what they call "the Obama Law" – provisions of the 2010 Dodd-Frank financial "reform" law backed by Obama that have created a virtual embargo on minerals produced in the Congo's desperately-poor mining towns.
The suffering is all eminently foreseeable. We predicted it, and its harm has been apparent for years. Olson points to “this 2011 account by Prof. Laura Seay (via) of how ‘electronics companies now have a strong incentive to source minerals elsewhere, leaving Congolese miners unemployed,’” and a 2011 account by David Aronson in the New York Times of the “unintended and devastating consequences” that he “saw firsthand on a trip to eastern Congo,” as well as a “more recent paper by law professor Marcia Narine.”
September 17, 2014 8:17 AM
Congress hasn’t voted just yet on the Continuing Resolution that includes the Export-Import Bank’s reauthorization. But we already know that it will pass this week, and Ex-Im will get a new lease on life, probably through June. We’ll have this fight all over again next spring and summer. But the fight has already taught an important lesson: more agencies should have automatically expiring charters. Ending or reforming Ex-Im would never have been a possibility if its charter didn’t have an expiration date. I make that point in a piece in Investor’s Business Daily:
Institutions matter. The rules of the game have a lot to do with how people play it — imagine what basketball strategy would look like if the three-point shot was changed to five points, or how baseball strategy would change if hitters could strike out on a foul ball.
The rules an agency issues aren't the only ones that matter. Rules governing the agencies themselves are just as important. If more agencies had a built-in check such as an automatic sunset that forced a periodic congressional reauthorization vote, they would have an incentive to behave better and pursue their missions in a less burdensome way.
The fight over Ex-Im isn't over. Even with Ex-Im's temporary new lease on life, reformers will still have won an important victory in tamping down its excesses.
September 11, 2014 12:21 PM
A vote on the Continuing Resolution, which includes the controversial Export-Import Bank reauthorization was originally scheduled for today, but has been pushed back to next week. So the combat continues over how long the Ex-Im reauthorization will last, and what other conditions might included as part of the deal. In today’s Washington Times, National Association of Manufacturers President Jay Timmons and I have dueling op-eds, with Timmons favoring reauthorizing Ex-Im, and me wanting to end it. The Wall Street Journal also weighed in with an editorial this morning, sharing my skepticism of Ex-Im.
Timmons makes three points in his piece that deserve a response. First, he argues that Ex-Im fills in gaps in private financing:
Ex-Im Bank provides financing that is critical to fill gaps when private-sector financing for small and large manufacturers is not available.
If Ex-Im makes a profit, as Timmons argues it does, then surely private banks would welcome an opportunity to make money for themselves by lending to more exporting businesses and their customers. If Ex-Im loses money, as the Congressional Budget Office convincingly argues, then there is no financing gap to be filled, and Ex-Im is financing too many insolvent projects.
Second, Timmons commits the “but other governments do it, too” fallacy:
September 9, 2014 12:29 PM
It appears Congress will decide the Export-Import Bank’s short-term fate this week. There are several bills with different reauthorization terms, and Rep. Justin Amash and Sen. Mike Lee even have a bill that would shutter the bank altogether. None of the bills have made it out of the House Financial Services Committee, which is chaired by Rep. Jeb Hensarling, who opposes the bank. What will likely happen instead is that Ex-Im reauthorization will be included in a Continuing Resolution (CR), which Congress must pass by September 30 to avoid a government shutdown.
The current battle isn’t whether Ex-Im will be reauthorized, it is how long the reauthorization will last. There are two likely options. Ex-Im opponents would prefer a reauthorization through early 2015. Ex-Im opposition is bipartisan, but the GOP has been more vocal about it, and most political observers are expecting Republicans to gain seats this November. Depending on how the numbers play out, when the new Congress convenes in January, it might be possible for Congressional Republicans to either let Ex-Im’s charter expire, or pass a bill similar to Amash and Lee’s to actively kill the bank, even if they can’t get much Democratic support.
Ex-Im’s defenders would rather keep the shutdown card in their hand; Ex-Im opponents will not risk a shutdown over a program equivalent to less than one percent of the federal budget. That’s why they want Ex-Im’s reauthorization to be the same length of any Continuing Resolution that gets passed, however long that might be. Even though that would be a shorter-term reauthorization, they can continue to renew Ex-Im with each CR that must pass going forward, knowing that it will succeed.
September 3, 2014 5:23 PM
Congress comes back from its annual August recess next week. One of the top items on its agenda is deciding the Export-Import Bank’s fate. Ex-Im subsidizes financing for U.S. exporters and their foreign customers. As I outlined here, Ex-Im subsidizes certain businesses at others’ expense. It is a pro-business policy, when what the economy needs are pro-market policies. Ex-Im will also be forced to shut its doors unless Congress reauthorizes its charter by the end of September, making for a golden reform opportunity for corporate welfare opponents.
The merits of the issue are clear enough, but politics is getting in the way. A bill to reauthorizes Ex-Im’s charter would likely pass the Senate, but would have trouble getting through the House. This would ordinarily mean that Ex-Im opponents would succeed in shuttering the agency, since Ex-Im’s expiration is automatic without reauthorization. That means Ex-Im supporters will probably pursue other means, such as tucking Ex-Im’s reauthorization into a must-pass appropriations bill. Ex-Im opponents would have no choice but to swallow that poison pill, or risk another politically costly government shutdown.